Isis on the threshold?

Many biotech CEOs would be happy to see their company reach a $1 billion stock market valuation. Not Stanley T. Crooke, who helped found Isis Pharmaceuticals in 1989. He says it should be much higher.

The value of Carlsbad-based Isis has floated around the $1 billion mark in recent years. Its share price has generally fluctuated with Isis’ prospects for Kynamro, its flagship cardiovascular drug developed with partner Genzyme.

At a June shareholders’ meeting, Crooke said he was frustrated with Isis’ stock price. Shares started the year at $7.25, rose to a yearly high of $15.61, and closed Monday at $10.04.

Kynamro’s prospects are uncertain. A U.S. regulatory committee recommended approval in October. But, last week, a European committee recommended rejecting Kynamro.

So Crooke is emphasizing another measure of Isis’ success: the company’s lucrative drug development partnerships with “big pharma” and biotech companies.

Isis says it has received $2.9 billion from its partners to date, including equity investments, with the prospect of as much as $5.6 billion more from drugs when and if they reach the market. These partnerships often include sizable upfront fees.

In other words, Crooke says Isis is more than one drug; it’s an entire franchise of drugs. And the key to these drugs’ promise is Isis’ gene-blocking antisense technology. Antisense brings the potential of treating diseases other technologies can’t.

In Crooke’s vision, Isis will become known for extracting the highest value from antisense with a relatively small staff, now numbering 345. The expensive and difficult task of completing clinical trials and marketing will be left to big pharma companies, which have extensive sales and regulatory staffs Isis doesn’t need to duplicate.

But like many approaches to biotech, antisense has proved very difficult to translate from lab research to profitable treatments on the market. That makes investors wary.

Antisense drugs are designed to jam molecules of messenger RNA, which translate information from DNA into proteins. The messenger RNA delivers the “sense,” or information, from DNA. The drugs are “antisense” fragments of RNA, engineered to block specific molecules of messenger RNA and no others. Kynamro blocks production of LDL, the so-called “bad cholesterol” implicated in cardiovascular disease.

Isis is the leader in antisense and holds strong intellectual property rights, said Fariba Ghodsian, chief investment officer of Dafna Capital Management in Los Angeles. That makes Isis the logical choice for companies interested in antisense, said Ghodsian, who has followed Isis for years.

“Isis has a very full pipeline, and they (the partners) can see some interesting drugs coming out of that,” Ghodsian said.

Isis counts 18 drugs in clinical development and five in preclinical development, with plans to add more. The mostly injected drugs treat cancer, and autoimmune and cardiovascular diseases, among others.

Antisense provides a different way of going after disease targets than conventional “small molecule” drugs, said Derek Lowe, a medicinal chemist who writes the well-known industry blog “In The Pipeline.”

“Antisense gives you the promise of being able to directly affect the amounts of key proteins being made inside cells — doing that specifically with the usual sorts of druglike molecules ranges from ‘very hard’ to ‘impossible with current technology,’” Lowe wrote in an email.

Crooke said Isis continues to improve its antisense technology to make it safer and more potent. The existing iteration, which Isis calls Generation 2.5, could produce drugs taken orally and not injected, he said.

Big deals

Isis’ deal with Genzyme in 2008 was viewed by biotech observers as a huge win for Isis. Genzyme agreed to pay Isis $175 million upfront and to buy $150 million in Isis stock at roughly double market value. In addition, Isis got the chance to earn up to $825 million in milestone payments before drug approval, and up to $750 million in commercial milestone payments after approval.

Finally, Genzyme and Isis would share profits from sales of Kynamro, starting with a 70/30 split in favor of Genzyme on a sliding scale as revenue grew. When worldwide revenue reached $2 billion a year, the companies would divide the profits equally.

Cambridge, Mass.-based Genzyme was purchased by Sanofi for $20 billion in 2011, and the French drugmaker kept the Kynamro program going.

Not content with such an ambitious program, Isis has continued to sign more partnerships and even develop its own “satellite” companies to spin off technology.

Isis sold one of these companies, Ibis Biosciences, the maker of a disease-detecting “biosensor,” to Abbott for about $225 million.

In October, another satellite company, Regulus Therapeutics, held its initial public offering. Regulus, a joint venture of Isis and Alnylam Pharmaceuticals, went public at $4 a share, down from its original target of $10 to $12 per share.

This year, Isis announced three deals with biotech Biogen Idec and one with drug giant AstraZeneca. The AstraZeneca deal got Isis $31 million in upfront and near-term payments, in addition to unspecified milestone payments.

The Biogen Idec deals brought Isis $61 million in upfront payments, with the potential of hundreds of millions more if drugs reach the market. The latest Biogen Idec deal could bring Isis a total of $600 million in milestones, plus double-digit royalties on drugs that reach the market.

Biotech analyst Karen Andersen says it’s tough to peg a value for the Isis-Biogen Idec partnerships because only one drug from them is in clinical trials, and it’s in just a Phase 1 trial.

“However, given that Biogen has inked three deals with Isis in 2012, I think they are clearly seeing a fit between their own neurology research and Isis’ technology,” said Andersen, with the Chicago-based research firm Morningstar, in an email.

Setbacks

But Isis has signed similar optimistic deals that lost their luster when once-promising drugs failed to reach their expected potential. Kynamro is an example.

Safety concerns about Kynamro’s effect on liver and cardiovascular function caused the companies to reduce its focus to the people most at risk from high LDL, those with the most severe forms of familial hypercholesterolemia. So even if Kynamro is ultimately approved, the prospect of a multibillion-dollar blockbuster drug has receded.

In 2004, Isis pulled the plug on another promising drug, alicaforsen, after it failed clinical trials for the second time. In 1995, Isis had signed a deal to develop alicaforsen for a variety of inflammatory conditions with German drugmaker Boehringer Ingelheim. The partnership ended after the drug failed clinical trials in 1999.

Isis regained sole rights to alicaforsen and continued to develop it. Alicaforsen eventually reached the market as an orphan drug for inflammatory bowel disease, after Isis licensed it to Atlantic Healthcare in 2007.

And while Isis has brought in huge amounts of cash, it has also spent it prodigiously. For the nine months ended Sept. 30, Isis spent $115 million on research and development. As of Sept. 30, Isis reported $343.6 million in cash and short-term investments on hand.

“If you’d shown people — heck, if you’d shown people at Isis — a snapshot back in 1992 of what 2012 would be like, they’d have been horrified, I’m sure, that things hadn’t worked out better,” said Lowe, the medicinal chemist blogger.

“But at the same time, the promise is still there, if you can just get some more details worked out,” Lowe said. “And there’s no reason, a priori, to think that they can’t — given enough money, and enough time, and enough effort.”

Crooke said he thinks investors are beginning to see beyond Kynamro to everything else Isis has to offer. After last week’s European recommendation to reject Kynamro, Isis shares actually went up slightly.